Taxation  of  Land 
Values 


BEING  CHAPTER  XII  OF  THE  THIRD 
BIENNIAL  REPORT 


OF  THE 


Minnesota  Tax  Commission 


1912 

ST.  PAUL,  MINNESOTA 


MINNESOTA  TAX  COMMISSION 


165 


CHAPTER  XII 

TAXATION  OF  LAND  VALUES 

There  has  been  a noticeable  trend  in  many  of  the  American 
states  in  recent  years  toward  either  partial  or  total  exemption  of 
personal  property  from  taxation.  This  movement  is  due  in  part 
to  the  admitted  failure  of  the  personal  property  tax,  especially 
when  an  attempt  is  made  to  apply  it  to  the  many  elusive  forms  of 
intangibles  that  now  play  an  important  part  in  our  industrial  sys- 
tem, and  in  part  to  a groAving  sentiment  that  the  conveniences  and 
necessities  of  the  home,  the  farm  stock  and  tools  of  the  farmer, 
and  the  tools  and  machinery  of  the  manufacturer  should  not  be 
taxed — that  taxes  should  be  imposed  on  production,  not  on  the 
means  of  production.  Several  states  noAV  exempt  many  forms  of 
personal  property  from  taxation,  Avhile  others  impose  either  a Ioav 
rate  or  a small  registration  tax  on  securities  and  other  forms  of 
credits.  In  New  York  secured  debts  may  be  exempt  from  taxation 
by  paying  a small  registry  tax;  Wisconsin  has  in  effect  substituted 
an  income  tax  for  personal  property  taxes,  while  our  own  state  in 
its  mortgage  registry  tax  and  the  three  mill  tax  on  money  and 
credits  has  taken  a long  step  in  the  direction  of  exempting  in- 
tangible property  from  taxation. 

Personal  Property  Taxes  Abolished  in  All  Other  Civilized  Countries 

The  United  States  is  the  only  advanced  nation  in  the  Avorld  that 
still  retains  the  personal  property  tax.  It  has  been  abandoned 
"TEn  all  of  the  progressive  nations  of  Europe ; the  Australian  colonies 
have  long  since  ceased  to  use  it,  and  in  Canada  within  the  last 
decade  province  after  province  has  abandoned  the  personal  property 
t tax  and  substituted  other  forms  of  taxation  more  equitable  and 
more  certain  in  results.  That  it  will  eventually  be  abandoned  in 
this  country  is  not  only  possible  but  very  probable.  The  trend  is 
* distinctly  in  that  direction  in  nearly  every  state  in  the  Union. 
The  personal  property  tax  stands  condemned  by  every  thoughtful 
student  of  taxation  as  the  easiest  of  all  taxes  to  evade,  as  incapable 
of  equitable  enforcement,  and  hence  unjust  in  application. 


166 


THIRD  BIENNIAL  REPORT 


Taxes  a Necessity 

Revenues  are  necessary  for  the  support  of  government  and  taxa- 
tion is  the  only  means  used  by  civilized  nations  to  secure  such  rev- 
enues. Organized  government  is  not  only  necessary  for  the  pro- 
tection of  the  weak  and  for  the  enforcement  of  law  and  order,  but 
also  for  the  important  functions  it  can  and  does  perform  in  bring- 
ing into  useful  development  the  powers  and  forces,  natural  and 
artificial,  surrounding  mankind.  To  do  the  many  things  now  re- 
quired of  government  by  civilized  society  it  becomes  necessary 
to  provide  some  means  of  raising  revenue  to  meet  the  expenses  of 
such  undertakings,  and  taxation  in  some  form  or  other  is  the  only 
method  by  which  such  expenses  can  be  met.  The  functions  of 
government,  too,  are  being  constantly  enlarged  which  means  in- 
creased expenses,  and  increased  expenses  'mean  increased  taxes. 
It  therefore  follows  that  the  elimination  of  personal  property  from 
-the  tax  rolls  does  not  mean  a reduction  in  taxation ; it  simply 
means  the  substitution  of  some  other  form  of  taxation  for  the  in- 
equitable and  unsatisfactory  personal  property  tax. 

Substitutes  for  the  Personal  Property  Tax 

Various  substitutes  for  personal  property  taxes  have  been  sug- 
gested, the  most  common  being  the  income  tax  and  the  single  tax 
on  land  values.  The  arguments  in  favor  of  an  income  tax  as  a sub- 
stitute for  personal  property  taxes  have  been  covered  in  another 
chapter  of  this  report  and  need  not  be  here  repeated.  The  ad- 
vocates of  the  land  tax  oppose  the  income  tax  because  they  object 
to  any  kind  of  a tax  on  production.  They  are  opposed  to  taxes 
on  all  forms  of  personal  property,  and  upon  improvements  on  lands 
— upon  dwellings,  and  stores,  and  factories,  and  upon  the  buildings 
and  improvements  of  the  farmer.  In  short,  they  are  opposed  to 
the  taxation  of  anything  and  everything  that  comes  from  human 
ingenuity  and  human  toil.  They  believe  that  a tax  on  incomes  is 
a tax  on  industry  and  thrift,  just  as  much  as  is  a tax  on  the  home 
or  the  furniture  of  the  home,  and  on  the  farmer’s  buildings  and 
fences  and  ditches ; so  they  oppose  it,  as  they  oppose  all  taxes  on 
industry,  or  anything  that  comes  from  industry.  They  offer  as  a 
substitute  a tax  on  the  rental  value  of  land  as  the  only  method  by 
which  public  revenues  may  be  raised  without  penalizing  toil  and 
thrift. 

Land  the  Fundamental  Basis  of  Taxation 

The  advocates  of  the  single  tax  claim  that  land  is  the  funda- 
mental basis  of  any  just  system  of  taxation.  It  has  a fixed  situs 


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167 


and  cannot  be  moved;  it  is  tangible  and  cannot  be  concealed;  its 
value  can  be  measured  with  reasonable  accuracy,  and  therefore  it 
can  be  taxed  with  greater  certainty  and  equality  than  any  other 
form  of  property. 

The  advocates  of  the  single  tax  system  propose  to  abolish  all 
taxes  on  personal  property,  on  houses,  buildings,  farm  animals  and 
farm  improvements,  and  on  machinery,  tools  and  goods  of  all  kinds, 
and  in  lieu  thereof  to  impose  a tax  on  the  value  that  inheres  in  the 
land.  They  contend  that  the  value  that  attaches  to  land  because 
of  the  growth  of  population  and  the  development  of  industry  be- 
longs to  the  people  and  consequently  should  be  taken  for  the  use 
of  the  people.  They  hold  that  there  are  two  distinct  kinds  of 
value,  one  the  result  of  individual  effort,  which  in  equity  belongs 
to  the  individual;  the  other,  the  result  of  the  presence,  needs,  and 
activities  of  the  whole  community,  and  in  justice  ought  to  be  de- 
voted to  the  public  use,  because  created  by  the  public. 

The  Single  Tax  Would  Destroy  Speculation 

That  the  single  tax  would  destroy  speculation  in  lands  is  a con- 
tention of  its  advocates.  If  taxes  were  levied  on  land  only  it  would 
be  unprofitable  to  hold  land  out  of  use.  The  owner  would  have 
to  use  his  land,  and  use  it  in  the  most  productive  way  in  order  to 
pay  the  taxes.  The  holding  of  idle  land,  it  is  claimed,  is  made 
possible  by  a low  tax  rate.  By  increasing  the  tax  rate  the  speculat- 
or, who  does  nothing  to  create  value,  would  be  eliminated  because 
under  such  conditions  land  would  be  acquired  and  held  only  for 
use.  Moreover,  it  is  contended,  the  removal  of  taxes  on  buildings 
and  improvements  would  encourage  the  improvement  of  property, 
just  as  the  present  system  discourages  improvements,  because  it 
puts  a penalty  in  the  form  of  a tax  on  industry  and  enterprise. 

A Modification  of  the  Single  Tax 

The  more  recent  trend  of  sentiment  in  favor  of  the  taxation  of 
land  values  as  the  principal  source  of  state  and  local  revenues  is 
in  the  direction  of  a modified  form  of  the  Henry  George  theory  of 
community  ownership.  That  theory  does  not  appeal  to  the  average 
American  citizen  in  whom  the  desire  for  ownership  is  almost  as 
deeply  rooted  as  the  love  of  home  and  family.  He  cannot  or  will 
not  reconcile  himself  to  the  theory  that  the  growth  in  the  value 
of  land  is  a communal  interest  and  should  be  shared  in  common  by 
all  the  people.  The  new  school  confines  its  advocacy  of  the  land 


168 


THIRD  BIENNIAL  REPORT 


tax  to  the  simple  proposition  of  making  land  values  the  basis  of 
state  and  local  taxation,  exempting  improvements  and  all  forms 
of  personal  property.  The  Henry  George  advocates  would  social- 
ize land;  the  new  school  would  simply  use  it  as  the  sole  basis  of 
state  and  local  taxation.  It  is  with  the  latter  phase  of  the  question 
that  we  propose  to  deal  in  this  chapter. 

Tax  Systems  of  Other  Countries 

Among  other  things  it  is  made  the  duty  of  the  tax  commission 
to  investigate  the  tax  laws  of  other  states  and  countries  and  to 
formulate  and  submit  to  the  legislature  from  time  to  time  such 
suggestions  and  recommendations  as  it  may  deem  expedient  to 
prevent  evasions  of  assessment  and  taxing  laws  and  to  secure  just 
and  equitable  taxation  in  this  state.  To  this  end  the  commission 
has  recently  made  a careful  investigation  and  study  of  the  tax 
systems  of  the  western  Canadian  provinces,  particular  attention 
being  given  to  the  taxation  of  land,  and  to  the  exemption  from 
taxation  of  improvements  on  land  and  most  forms  of  personal  prop- 
erty, a system  that  is  now  of  very  general  application  in  those 
provinces. 

There  were  several  reasons  why  western  Canada  was  selected 
at  this  time  for  an  investigation  of  its  taxing  system.  Its  physical 
conditions  are  not  unlike  our  own.  It  has  its  agricultural  lands, 
its  timber  lands,  and  its  mineral  lands,  as  we  have.  Its  social  and 
economic  conditions  are  similar  to  our  own.  It  is  being  settled  and 
developed  by  a rugged  and  progressive  class  of  people  having  the 
same  ancestry  as  those  who  made  the  American  West  great  and 
prosperous.  For  these  and  other  reasons,  and  for  the  further  fact 
that  its  taxing  system  is  in  the  making  unhampered  by  precedent 
and  custom,  its  revenue  system  seemed  to  offer  a profitable  field 
for  investigation  and  study. 

Taxation  in  Western  Canada 

The  western  Canadian  provinces  have  been  blazing  some  new 
trails  in  the  field  of  taxation  during  the  past  dozen  years.  They 
have  put  into  successful  operation  some  principles  of  taxation  that 
were  thought  by  many  well-meaning  people  to  be  impossible  of 
application.  Unlike  Minnesota  and  other  western  states  that  copied 
the  crude  and  restrictive  tax  system  of  Ohio  and  other  eastern 
states,  western  Canada  did  not  adopt  the  tax  system  of  the  older 
eastern  provinces,  but  devised  a scheme  of  taxation  to  fit  the  in- 


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169 


dustrial  and  economic  conditions  of  the  new  empire  of  the  West. 
While  in  the  main  their  schemes  of  taxation  have  worked  equit- 
ably and  satisfactorily,  they  have  not  been  slow  to  change  when 
experience  suggested  that  change  was  desirable.  They  ascribed  no 
sanctity  to  their  systems,  for  they  realized  that  changing  condi- 
tions, social,  economic,  and  industrial,  bring  new  problems  in  taxa- 
tion that  must  be  met  with  new  machinery  and  new  methods. 

The  provincial  legislatures  of  the  Canadian  provinces  are  in- 
vested with  much  greater  legislative  powers  in  matters  of  taxa- 
tion than  the  state  legislatures  of  the  American  commonwealths. 
Their  powers  are  not  limited  by  restrictive  constitutional  pro- 
visions, as  in  most  of  the  American  states.  Under  the  Canadian 
confederation  act  each  provincial  legislature  can  devise  its  own 
scheme  of  direct  taxation.  It  may  impose  taxes  on  land,  or  per- 
sonal property,  or  income,  or  all  of  them,  and  it  may  exempt  any 
class  of  property  from  taxation.  It  may  also  delegate  to  a munic- 
ipality the  exclusive  power  to  tax  or  exempt  any  class  of  prop- 
erty. Briefly  stated,  the  entire  scheme  of  taxation  is  left  to  the 
wisdom  of  the  legislature,  unhampered  by  constitutional  restric- 
tions. 

Diversity  in  Taxing  Systems 

This  wide  latitude  in  the  powers  of  the  legislature  results,  as 
would  be  expected,  in  a wide  diversity  of  tax  systems  in  the  dif- 
ferent provinces,  and  even  in  different  municipalities  of  the  same 
province.  In  practice  none  of  the  western  provinces  impose  a state 
or  provincial  tax  on  lands,  except  in  unorganized  districts,  nor  is 
any  state  tax  imposed  on  personal  property  except  in  British  Col- 
umbia. Indeed,  some  of  the  provinces  levy  no  direct  tax  on  any 
kind  of  property.  They  depend  entirely  on  special  taxes  and  fees 
and  the  Dominion  subsidy  for  the  necessary  revenue  for  provincial 
purposes.  In  most  cases  the  power  to  tax  or  exempt  property  is 
delegated  to  municipalities.  The  delegated'  power  is  usually  a re- 
stricted one,  though  in  some  cases  there  seems  to  be  no  limitations 
on  the  taxing  power  of  the  municipality.  Under  their  taxing  sys- 
tem there  is  entire  separation  of  the  sources  of  state  and  local 
revenues.  The  power  of  the  municipa'lity  to  tax  or  exempt  property 
means  local  option  in  taxation,  hence  the  wide  diversity  of  tax 
systems  in  the  different  municipalities. 

A brief  review  of  the  taxing  systems  of  the  four  western  pro- 
vinces— Manitoba,  Saskatchewan,  Alberta,  and  British  Columbia — 
may  be  of  interest. 


170 


THIRD  BIENNIAL  REPORT 


Taxaticn  in  Manitoba 

The  province  of  Manitoba  imposes  no  provincial  tax  on  real  or 
personal  property.  The  public  revenues,  in  addition  to  the  Domin- 
ion subsidy,  are  derived  principally  from  provincial  lands,  liquor 
licenses,  railroad,  corporation,  and  inheritance  taxes,  and  other 
special  taxes  and  fees.  Municipalities,  however,  are  authorized  to 
impose  a tax  on  both  real  and  personal  property,  subject  to  cer- 
tain exemptions.  The  real  estate  exemptions  are  similar  to  our 
own  and  include  public  property,  and  property  used  for  educa- 
tional, religious  and  charitable  purposes.  Creameries  and  cheese 
factories  are  also  exempt.  Personal  property  exemptions  include 
household  goods  and  effects,  and  the  live  stock  and  farm  tools  and 
implements  of  farmers  used  and  kept  on  the  premises  of  the  owner. 
Cities  and  villages  are  authorized  under  certain  conditions  to  im- 
pose a business  tax  in  lieu  of  personal  property  taxes. 

Winnipeg,  the  principal  city  of  the  province,  derives  its  public 
revenue  from  real  estate,  business,  and  franchise  taxes.  Land  for 
purposes  of  taxation  is  assessed  at  full  value  and  buildings  and 
improvements  at  two-thirds  of  full  value.  The  rate  of  taxation  in 
1911  was  13.25  mills. 

The  business  tax  was  introduced  in  Winnipeg  in  1893  to  take 
the  place  of  personal  property  taxes.  Originally  the  tax  was  based 
on  measurement,  that  is,  on  the  number  of  square  feet  occupied 
by  the  business.  This  system  was  changed  in  1906  to  a rental  basis. 
The  tax  is  now  imposed  on  the  rental  value  of  the  property  occu- 
pied by  the  business.  The  assessed  rental  value  may  be  more  or 
less  than  the  actual  rent  paid  if,  in  the  opinion  of  the  assessment 
commissioner,  the  true  rental  value  is  more  or  less  than  the  actual 
rent  paid.  The  present  rate  is  h 2/3  per  cent  on  the  rental  value. 
Under  this  rate,  if  the  rental  value  of  a stone  building  was  $3,000 
per  year  the  tax  would  amount  to  $200.  The  total  tax  derived 
from  this  source  amounted  to  about  $270,000  in  1911. 

While  the  business  tax  in  Winnipeg  does  not  give  entire  satis- 
faction, it  is  regarded  with  greater  favor  than  the  personal  prop- 
erty tax. 

Taxation  in  Saskatchewan 

Saskatchewan,  the  first  province  west  of  Manitoba,  imposes  no 
provincial  tax  on  real  or  personal  property.  The  provincial  rev- 
enues are  derived  from  sources  similar  to  that  of  Manitoba.  The 
power  to  tax  real  estate  and  to  impose  business  and  income  taxes 
is  delegated  to  the  municipalities,  but  they  are  not  authorized  to 


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tax  personal  property.  Land  is  assessed  at  full  value,  but  build- 
ings and  improvements  cannot  be  assessed  at  more  than  60  per 
cent  of  full  value.  Under  a law  passed  in  1910  cities  and  villages 
may  reduce  the  assessment  on  buildings  and  improvements  15  per 
cent  per  year  until  entirely  eliminated.  This  law  will  enable  cities 
and  villages  to  bring  about  entire  exemption  of  buildings  and  im- 
provements within  a period  of  four  years  if  they  so  desire.  Many 
of  the  cities  and  villages  are  taking  advantage  of  this  provision  of 
law  and  will  eventually  entirely  exempt  this  class  of  property  from 
taxation. 

The  business  tax  in  the  cities  of  Saskatchewan  is  based  on  the 
floor  space  occupied  by  the  business.  Businesses  are  classified  and 
a different  rate  applied  to  each  class.  The  rate  of  assessment  varies 
from  50  cents  to  $8  per  square  foot,  according  to  the  class  of 
business.  The  lowest  rate  is  on  flour  mills  and  sash  and  door  fac- 
tories, and  the  highest  on  banks,  brokers,  and  financial  institutions. 
The  business  tax  seems  to  give  general  satisfaction. 

An  interesting  example  of  the  working  of  the  two  systems  of 
taxation — taxing  land  and  improvements  and  taxing  land  only — 
was  exemplified  in  the  city  of  Lloydminster,  half  of  which  is  in 
Saskatchewan  and  half  in  Alberta.  That  part  of  the  city  which 
is  in  Saskatchewan  levied  a tax  on  buildings  and  improvements 
as  well  as  on  lands,  while  the  part  in  Alberta  taxed  the  land  only. 
The  result  was  that  the  Alberta  side  forged  ahead  of  the  Saskat- 
chewan side,  and  while  most  of  the  retail  business  was  done  in  the 
latter,  all  of  the  better  class  of  residences  were  built  on  the  Alberta 
side. 

Commenting  on  the  exemption  of  buildings  and  improvements 
from  taxation,  the  minister  of  municipal  affairs  of  Saskatchewan 
in  a report  issued  in  1911  says: 

In  connection  with  cities  might  be  mentioned  the  growing  interest  in 
the  single  tax  system  and  the  application  in  our  cities  of  some  of  the  prin- 
ciples propounded  by  Henry  George.  It  has  often  been  stated,  and  should 
be  as  often  repeated,  that  the  public-spirited  owner  of  a lot,  who  erects 
thereon  a building  which  improves  the  street  and  enhances  the  value  of 
the  surrounding  property,  should  not  be  made  to  pay  a penalty  by  way  of 
taxes  as  a result  of  his  efforts  and  enterprise  while  the  neighboring  land 
owner,  who  keeps  vacant  the  adjoining  lot  for  speculative  purposes,  enjoys, 
without  effort  on  his  part,  the  fruits  of  another’s  enterprise  in  making 
proper  use  of  his  holding.  On  the  other  hand,  the  fact  is  not  to  be  over- 
looked that  a building  is  more  of  a charge  on  the  municipality  by  way  of 
5 police  and  fire  protection  than  is  a vacant  lot.  It  has  many  opponents  in 
eastern  provinces,  but  the  examples  set  by  the  cities  of  Vancouver  and  Ed- 
monton and  the  sentiments  in  this  regard  expressed  by  many  leading  munic- 
ipal men  in  the  province  go  to  show  that  it  has  many  strong  advocates  in 
western  Canada. 


172 


THIRD  BIENNIAL  REPORT 


Taxation  in  Alberta 

The  tax  system  of  Alberta  is  similar  to  that  of  Saskatchewan, 
with  the  difference  that  buildings  and  improvements  are  now  ex- 
empted from  taxation  in  almost  the  entire  province.  Except  in  one 
or  two  cities,  personal  property  is  also  exempted  from  taxation. 
A peculiar  feature  of  the  Alberta  taxing  system  is  a tax  levied  in 
rural  municipalities  at  so  much  per  acre  without  regard  to  the 
value  of  the  land.  In  such  municipalities  a tax  of  one  and  one- 
quarter  of  a cent  per  acre  is  levied  for  educational  purposes,  and 
an  additional  tax  varying  from  -1%  cents  to  5 cents  an  acre  for 
general  purposes.  A tax  levied  on  the  acre  principle  has  little  to 
commend  it,  but  as  the  rate  is  quite  low  it  seems  to  be  accepted 
without  much  criticism. 

In  Calgary,  the  principal  city  of  Alberta,  land  is  assessed  at 
full  value.  Prior  to  1909  buildings  and  improvements  were  assessed 
at  full  value.  In  1909  the  assessment  was  made  at  80  per  cent,  in 
1910  at  50  per  cent,  and  in  1911  at  25  per  cent  of  full  value.  Un- 
der a recent  law  the  assessment  on  buildings  and  improvements 
must  be  reduced  at  least  10  per  cent  each  year  until  entirely  elim- 
inated. 

Edmonton,  the  capital  city  of  the  province,  is  the  only  city  of 
importance  in  the  Canadian  West  that  has  adopted  the  single  tax 
system  in  its  entirety.  A tax  on  land  values  alone  is  the  only  tax 
levied  in  that  city.  The  city  has  had  a marvelous  growth  in  the 
past  few  years,  but  whether  or  not  such  growth  has  been  due  in 
part  to  its  tax  system  is  a question  of  some  dispute.  That  jit  Is 
giving  general  satisfaction  is  evidenced  by  the  fact  that  nearly 
every  resident  of  the  city  is  an  ardent  single  taxer. 

Taxation  in  British  Columbia 

There  is  no  provincial  tax  on  real  estate  in  British  Columbia, 
except  in  unorganized  districts.  A provincial  tax,  however,  is 
levied  on  personal  property  and  incomes.  Household  goods,  money 
and  credits,  and  several  other  classes  of  personal  property  are  ex- 
empt from  taxation.  Land  for  purposes  of  taxation  is  classified 
as  improved,  wild,  timber,  and  coal  lands,  and  a different  rate  of 
taxation  imposed  on  each  class.  The  rate  for  the  revenue  year  of 
1910-1911  was  one-half  of  1 per  cent  on  the  assessed  value  of  im- 
proved lands,  4 per  cent  on  wild  lands,  2 per  cent  on  timber  land, 
and  1 per  cent  on  worked  and  2 per  cent  on  unworked  coal  lands. 
Mines  are  taxed  on  the  output,  the  rate  being  2 per  cent  on  the 
value  of  the  ore  mined. 


MINNESOTA  TAX  COMMISSION 


173 


In  1911  a royal  commission  on  taxation  was  appointed  to  in- 
vestigate the  revenue  system  of  the  province  and  to  make  such 
recommendations  as  it  deemed  expedient  for  the  improvement  of 
its  taxing  system.  After  a careful  investigation,  the  commission 
recommended,  among  other  things,  the  abolition  of  the  personal 
property  tax,  and  the  tax  on  buildings  and  improvements  on  lands. 
On  the  latter  question  the  commission  says: 

Further,  it  has  been  argued,  again  as  a matter  of  principle,  that  im- 
provements on  lands  should  be  exempt  from  taxation  altogether,  and  that 
the  basis  of  valuation  for  the  purposes  of  taxation  should  be  the  reasonable 
sale  price  of  the  land  in  a state  of  nature,  due  regard  being  had  in  fixing 
the  price  to  all  the  conditions  as  to  location,  facility  of  access,  fertility, 
and  so  on,  that  would  influence  a purchaser.  On  such  a theory  it  would 
follow  that  all  lands  of  the  same  class  or  character  would  not  necessarily 
be  valued  at  the  same  rate,  and  also  the  use  to  which  the  owner  may  put 
the  land  would  not  be  taken  into  account.  One  might  put  a building  on  his 
land;  another  might  grow  hay;  another  might  use  his  as  a pasture.  All 
these  uses  would  be  beneficial  to  the  community,  but,  according  to  such 
theorists,  they  ought  not  to  be  the  determining  causes  of  the  value  of  the 
land.  If  they  were,  the  value  would  fluctuate  with  the  changing  uses  to 
which  the  land  might  be  put  from  time  to  time. 

Further,  it  has  been  contended  that  an  improved  piece  of  land  should 
be  valued  for  purposes  of  taxation  at  the  same  value  as  a similar  piece  of 
unimproved  land,  but  that  in  valuing  the  improved  land  the  value  of  the 
improvements  should  not  be  considered  except  for  the  purpose  of  arriving 
at  the  value  of  the  land  itself,  and  that  this  true  value  should  be  the  sell- 
ing value  of  the  land  subject  to  deduction  for  the  present  value  of  the  im- 
provements thereon.  * * * It  has  been  urged  that  the  taxation  of  im- 

provements, like  the  taxation  of  personal  property,  would  be  a penalization 
of  thrift  and  energy,  and  ought  to  be'  abolished  in  a community  whose  chief 
aims  are  progress  and  the  development  of  all  kinds  of  industry. 

Finally,  it  has  been  maintained  that  the  exemption  of  improvements 
from  taxation  would  more  especially  relieve  the  farmers  and  the  agricul- 
tural classes  generally,  who,  in  the  judgment  of  your  commissioners,  should 
be  especially  encouraged,  the  prosperity  of  no  other  class  being  so  essential 
to  the  best  interests  of  the  province  at  large. 

Largely  as  a result  of  the  report  of  the  royal  commission  an 
amendment  to  the  tax  laws  of  the  province  was  enacted  under 
which  no  tax  will  he  imposed  on  buildings  and  improvements  on 
lands  or  on  personal  property  after  January  first  of  the  coming 
year. 

Vancouver,  the  metropolis  of  British  Columbia,  was  the  first 
city  in  Canada  to  exempt  buildings  and  improvements  on  land 
from  taxation.  The  first  step  toward  exemption  was  taken  in  1895 
when  the  assessment  on  improvements  was  reduced  to  50  per  cent 
of  full  value.  This  was  followed  in  1906  by  an  additional  decrease 
of  25  per  cent,  and  in  1910  entire  exemption  was  brought  about. 
The  result,  it  is  claimed  was  magical.  There  was  an  immediate  leap 
forward  in  local  prosperity,  huge  buildings  at  once  began  to  rise 
up  where  shacks  had  stood,  and  the  city  grew  in  population  by 


174 


THIRD  BIENNIAL  REPORT 


leaps  and  bounds.  Ten  years  ago  it  had  a population  of  less  than 
27,000;  today  it  exceeds  150,000.  In  1901  the  assessed  value  of 
land  was  less  than  $23,000,000 ; today  it  exceeds  $100,000,000.  That 
the  marvelous  growth  of  the  city  is  entirely  due  to  its  taxing  sys- 
tem is  not  claimed,  but  that  it  has  stimulated  and  aided  such  growth 
is  generally  admitted. 

In  Vancouver,  as  elsewhere,  some  criticism  of  the  principle  of 
exempting  buildings  is  heard  because  of  the  claim  that  as  build- 
ings increase  in  size  and  number  there  is  a corresponding  increase 
in  the  cost  of  police  and  lire  protection  and  other  public  service, 
and  that  it  is  unfair  to  require  the  land  to  bear  this  added  burden. 

In  answer,  it  is  contended  that  buildings  increase  the  value  of 
the  land — the  adjoining  vacant  lot  as  well  as  the  lot  on  which  the 
building  is  erected — and  that  therefore  the  added  burden  should 
justly  fall  on  the  land.  They  point  out  that  it  is  land,  not  build- 
ings, that  increases  in  value  in  a growing  city;  that  police  and  fire 
protection  and  other  public  service  are  not  elements  of  value ; that 
such  service  neither  increases  nor  decreases  the  cost  of  a building, 
and  therefore  in  justice  should  not  be  charged  to  the  building. 

Whatever  merit  there  may  be  in  either  contention,  it  is  but  fair 
to  add  that  a large  majority  of  the  people  of  Vancouver  seem  to 
be  strong  advocates  and  supporters  of  the  principle  of  exempting 
buildings  and  improvements  from  taxation. 

Growth  of  the  Single  Tax  Principle  in  Western  Canada 

The  most  striking  feature  in  a study  of  tax  reform  in  western 
Canada  is  the  strong  trend  throughout  the  entire  country  in  the 
direction  of  the  single  tax  principle.  That  so  far  it  is  working 
satisfactorily  wherever  tried  is  generally  admitted,  even  by  op- 
ponents of  the  principle.  In  no  district  in  which  the  principle  has 
been  applied  is  there  any  noticeable  desire  to  return  to  the  old 
system.  From  present  indications  it  is  safe  to  predict  that  within 
the  next  ten  or  twenty  years  the  single  tax  principle  will  be  adopt- 
ed by  every  taxing  district  in  western  Canada. 

The  Single  Tax  Would  Require  a Constitutional  Amendment  in  4 

Minnesota 

Whether  or  not  the  single  tax  principle  could  be  successfully 
applied  in  Minnesota  is  a question  of  considerable  difference  of 
opinion.  BeTore  it  could  be  put  into  effect,  however,  the  state  con- 
stitution would  have  to  be  amended. 


MINNESOTA  TAX  COMMISSION 


175 


The  old  tax  provision  of  the  state  constitution  adopted  in  1857 
required  that  taxes  should  be  equal  and  uniform  on  all  classes  of 
property.  The  legislature  was  authorized  and  directed  to  pass 
laws  .“taxing  all  monies,  credits,  investments  in  bonds,  stocks,  joint 
stock  companies,  or  otherwise,  and  also  all  real  and  personal  prop- 
erty according  to  its  true  value  in  money.”  This  provision  of  the 
constitution  circumscribed  all  tax  legislation  in  the  state  for  nearly 
half  a century. 

In  1906  an  amendment  to  the  tax  provision  of  the  state  con- 
stitution was  adopted,  known  as  “the  wide  open  tax  amendment,” 
permitting  the  classification  of  property  for  purposes  of  taxation. 
The  tax  provision  now  reads:  “The  power  of  taxation  shall  never 
be  surrendered,  suspended  or  contracted  away.  Taxes  shall  be 
uniform  upon  the  same  class  of  subjects,  and  shall  be  levied  and 
collected  for  public  purposes.”  While  the  amendment  permits  the 
classification  of  property,  it  does  not  enlarge  the  exemption  pro- 
vision of  the  constitution.  A low  rate  of  taxation  may  be  imposed 
on  selected  classes,  but  no  class,  other  than  those  specifically  men- 
tioned in  the  constitution,  can  be  entirely  exempted  from  taxation. 
It  would  therefore  not  be  possible  to  exempt  personal  property, 
or  buildings  and  improvements  on  lands  without  first  amending 
the  state  constitution. 

The  Single  Tax  Would  Not  Reduce  the  Burden  of  Taxation 

The  exemption  of  personal  property,  and  buildings  and  im- 
provements on  lands  from  taxation  would  not  mean  in  itself  a les- 
sening of  the  tax  burdens,  but  it  would  make  a considerable  dif- 
ference in  the  incidence  of  the  tax,  and,  consequently,  in  the  dis- 
tribution of  the  tax  burdens.  As  stated  in  another  chapter  of  this 
report,  it  is  the  expenditures,  not  the  assessment,  that  make  a tax 
high  or  low.  Unless  expenditures  were  reduced,  the  elimination 
of  persona]  property  and  buildings  and  improvements  from  the 
tax  rolls  would  not  reduce  taxes;  it  would,  as  already  stated, 
change  the  incidence  but  not  the  burden  of  the  tax.  A study  of  the 
probable  effect  of  such  exemptions  may  be  of  interest. 

Exemption  of  Personal  Property 

The  total  assessment  this  year,  exclusive  of  money  and  credits, 
is  $1,365,676,469,  of  which  amount,  $1,150,393,544,  or  about  84  per 
cent  is  on  real,  and  $215,282,925,  or  16  per  cent  is  on  personal 
property.  If  the  personal  property  should  be  eliminated  from  the 


176 


THIRD  BIENNIAL  REPORT 


tax  rolls,  it  would  be  necessary,  in  order  to  make  up  the  loss  of 
revenue  from  the  personal  property  tax,  to  increase  the  assessed 
value  of  real  property  about  18.7  per  cent.  The  other  alternative 
would  be  to  increase  the  rate  of  levy  a sufficient  amount  to  make 
up  the  loss.  In  either  case  the  change  would  be  somewhat  radical 
if  brought  about  in  a single  year.  If  it  was  decided  to  exempt 
personal  property,  it  would  probably  be  better  to  have  the  process 
of  exemption  extend  over  a short  period  of  years,  beginning,  say, 
with  household  goods,  and  farm  tools  and  live  stock  used  on  the 
farm,  and  perhaps  money  and  credits,  and  then  extend  it  in  sub- 
sequent years  to  other  classes  until  total  exemption  was  brought 
about. 

Ratio  of  Real  to  Personal  Property 

The  ratio  of  real  to  personal  property  in  the  state,  based  on 
assessed  values,  would  indicate  a fairly  uniform  growth  in  the  two 
classes  of  property  during  the  past  twenty  years.  During  the  past 
six  years,  however,  the  relative  increase  has  been  greater  in  real 
than  in  personal  property,  due  in  part  to  the  increase  in  mineral 
values,  and  in  part  to  the  change  in  the  method  of  listing  and 
assessing  certain  forms  of  credits. 

The  following  table  shows  the  total  real  and  personal  property 
assessment  of  the  state,  and  the  percentage  of  real  and  personal 
to  the  total  during  each  ten  years  from  1860  to  1890,  and  each  two 
years  from  1890  to  1912 : 


Total  Assessed  Value  of  Real  and  Personal  Property,  and  Percentage  of 
Real  and  Personal  to  the  Total  for  a Period  of  Years 


Year 

Total  Assessed 
Value 

Real 

Estate 

Per  Cent 
of  Total 

Personal  Per  Cent 
Property  of  Total 

1860 

$41,383,315 

$36,753,408 

88.8 

$4,629,907 

11.2 

1870 

93,339,558 

67,221,348 

72.0 

26,118,210 

28.0 

1880 

268,517,736 

202,272,048 

75.3 

66,245,688 

24.7 

1890 

606,527,729 

497,128,295 

81.9 

109,399,434 

18.1 

1892 

655,473,393 

541,116,517 

82.6 

114,356,876 

17.4 

1894 

658,759,254 

553,157,461 

83.9 

105,601,793 

16.1 

1896 

579,036,806 

478,742,654 

82.7 

100,294,152 

17.3 

1898 

599,358,546 

489,565,789 

81.7 

109,792,757 

18.3 

1900 

610,979,258 

490,537,617 

80.3 

120,441,641 

19.7 

1902 

784,493,325 

647,253,261 

82.5 

137,240,064 

17.5 

1904 

870,502,652 

701,066,776 

80.5 

169,435,876 

19.5 

1906 

941,346,881 

751,887,611 

79.9 

189,459,270 

20.1 

1908 

1,091,641,300 

898,597,981 

82.3 

193,043,319 

17.7 

1910. 

1,222,430,377 

1,012,449,518 

82.8 

209,980,859 

17.2 

1912 

. . . . 1,365,676,469 

1,150,393,544 

84.2 

*215,282,925 

15.8 

*Does  not  include  money  and  credits 


MINNESOTA  TAX  COMMISSION 


177 


The  average  percentage  of  real  to  personal  for  the  years  cov- 
ered in  the  above  table  is  82  real  to  18  personal.  If  personal  prop- 
erty had  not  been  subject  to  taxation  during  this  period,  and  'if 
the  same  amount  of  revenue  had  been  required  for  state  and  local 
purposes,  it  would  have  been  necessary  to  increase  either  the  as- 
sessed value  or  the  rate  of  taxation  on  land  an  average  of  22 
per  cent  to  produce  the  required  amount  of  revenue. 

While  the  exemption  of  personal  property  from  taxation  would 
mean  higher  taxes  on  real  estate,  it  would  not  necessarily  mean 
that  each  individual  owner  of  real  property  would  pay  an  increased 
amount  of  taxes.  In  many  cases  he  would  pay  less,  because  the 
amount  saved  on  personal  property  taxes  would  be  greater  than  the 
increase  in  real  estate  taxes.  In  other  cases  the  reverse  would  be 
true.  To  the  average  owner  and  occupant  of  a home  or  a farm 
the  change  would  probably  not  mean  much  one  way  or  the  other. 
The  elimination  of  personal  property  taxes,  however,  would  un- 
doubtedly add  somewhat  to  the  tax  burdens  of  speculators  and 
owners  of  idle  property. 

Exemption  of  Structures  and  Improvements 

In  assessing  real  property  in  this  state  the  law  requires  that 
the  value  of  the  land  and  the  value  of  structures  and  improve- 
ments on  the  land  shall  be  shown  in  separate  columns  on  the  as- 
sessment roll.  Under  this  practice  the  relative  assessed  value  of 
land,  and  structures  and  improvements  on  land  can  be  readily 
ascertained  for  any  year. 

The  following  table  shows  the  assessed  value  of  land  and  struc- 
tures on  land,  and  the  relative  percentage  of  each  class  to  the  total 
assessment  of  real  property  during  each  ten  years  from  1880  to 
1900,  and  for  each  two  years  from  1890  to  1912 : 

Assessed  Value  of  Lands  and  Structures 


Total  Value  Assessment  of  Per  Cent  Assessment  Per  Cent 
Year  Real  Lands  Exclusive  of  of  of 

Property  of  Structures  Total  Structures  Total 


\ 1880 $202,272,048  $155,538,653  76.9  $46,733,395  23.1 

1890 497,128,295  395,545,187  79.6  101,583,108  20.4 

, 1900 490,537,617  365,023,976  74.4  125,513,641  25.6 

1902 647,253,261  487,387,700  75.3  158,865,561  24.7 

• 1904 701,066,776  530,295,225  75.6  170,771,551  24.4 

1906 751,887,611  563,589,908  75.0  188,297,703  25.0 

1908 898,597,981  689,211,302  76.7  209,386,679  23.3 

1910 1,012,449,518  773,888,282  76.4  238,561,236  23.6 

1912 1,150,393,544  880,471,664  76.5  269,921,880  23.5 


178 


THIRD  BIENNIAL  REPORT 


It  will  be  noticed  that  the  relative  assessed  value  of  lands  and 
structures  has  varied  but  little  during  the  period  covered  in  the 
above  table.  The  difference  in  the  ratio  between  1880  and  1912  is 
less  than  one-half  of  1 per  cent.  The  .average  ratio  for  the  entire 
period  is  76.3  per  cent  on  lands,  23.7  per  cent  on  structures. 

If  structures  had  been  exempt  from  taxation  during  this  period, 
an  average  increase  of  31  per  cent  on  either  the  assessed  value 
of  lands  or  in  the  rate  of  taxation  would  have  been  necessary  to 
produce  the  same  amount  of  revenue  as  the  combined  assessment 
produced  during  the  same  period.  The  increase,  however,  would 
have  been  greater  in  cities  and  villages  and  less  in  rural  districts 
than  the  above  average. 

The  following  table  shows  the  relative  percentage  of  assessed 
value  of  land  and  structures  on  rural  property,  and  land  and  struc- 
tures on  city  and  village  property  from  1880  to  1912 : 


Percentage  of  Assessed  Value  of  Land  and  Structures  on  Acre  Property  and 
Also  on  Platted  Property  in  Cities  and  Villages 


, Acre 

Property N 

City  and  Village  Property 

Year 

Lands 

Structures 

Lands 

Structures 

1880 

84.72% 

15.28% 

59.85% 

40 

• 15% 

1890 

90.21 

9.79 

71.67 

28, 

,33 

1892 

89.96 

10.04 

70.58 

29, 

,42 

1894 

89.73 

10.27 

69.39 

30, 

,61 

1896 

87.13 

12.87 

61.59 

38, 

,41 

1898 

87.16 

12.84 

61.48 

38. 

,62 

1900 

86.73 

13.27 

59.83 

40, 

,17 

1902. 

87.61 

12.39 

56.99 

43, 

.01 

1904 

88.72 

11.28 

54.80 

45. 

,20 

1906 

89.32 

10.68 

52.63 

47, 

,37 

1908 

91.24 

8.76 

49.87 

50. 

.13 

1910 

91.03 

8.97 

50.10 

49, 

.90 

1912 

90.98 

9.02 

49.30 

50. 

,70 

It  will  be  noticed  from  this  table  that  during  the  past  twelve 
years  the  relative  assessment  of  structures  is  decreasing  in  the  rural 
districts  and  increasing  in  cities  and  villages.  In  1900,  structures 
represented  13.27  per  cent  of  the  total  real  estate  asssessment  in 
rural  districts,  and  9.02  per  cent  in  1912.  During  the  same  period 
the  assessment  of  structures  in  cities  and  villages  increased  from 
40.17  per  cent  in  1900  to  50.70  per  cent  in  1912.  The  average  ratio 
for  the  entire  period  is  88.81  per  cent  on  lands  and  11.19  per  cent 
on  structures  in  rural  districts,  and  59.08  per  cent  on  lands  and 
40.92  per  cent  on  structures  in  cities  and  villages. 

If  structures  had  been  exempt  during  this  period  an  average 
increase  on  lands  of  12.6  per  cent  in  rural  districts,  and  103.75  per 


MINNESOTA  TAX  COMMISSION 


179 


cent  in  cities  and  villages  would  have  been  necessary  to  produce 
the  required  amount  of  revenue.  If  structures  were  exempt  this 
year  the  increase  would  be  12.3  per  cent  in  rural  districts,  and 
102.84  per  cent  in  cities  and  villages. 

The  exemption  of  structures  and  improvements  on  lands  from 
taxation  would,  as  in  the  case  of  personal  property,  result  in  a con- 
siderable increase  in  the  tax  burdens  on  lands.  The  increase,  as 
already  shown,  would  be  greater  in  cities  and  villages  than  in  rural 
districts,  but,  again  as  in  personal  property  exemptions,  the  change 
would  not  necessarily  mean  increased  taxes  to  each  individual 
owner  of  land.  In  many  cases  the  amount  saved  in  taxes  because 
of  the  exemption  of  structures  and  improvements  would  be  greater 
than  the  increase  in  the  land  tax,  but  it  would  no  doubt  add  con- 
siderably to  the  tax  burden  on  unimproved  land,  and  especially  on 
high  priced  unimproved  city  property.  As  nearly  75  per  cent  of 
all  taxes  are  levied  for  local  purposes,  the  change  would  but  slight- 
ly affect  the  amount  any  taxing  district  would  contribute  to  county 
or  state  government. 

Exemption  of  Personal  Property  and  Structures 

If  personal  property  and  structures  were  both  placed  on  the  ex- 
empt list  and  taxes  levied  on  land  values  only,  the  added  tax  bur- 
den on  land  would  of  course  be  greater  than  if  the  exemption  ap- 
plied to  only  one  of  the  classes.  The  following  table  shows  the 
total  assessed  value  of  real  and  personal  property,  the  assessed 
value  of  land,  of  structures,  and  of  personal  property,  and  the  per- 
centage of  each  to  the  total  from  1880  to  1912 : 


ASSESSED  VALUE  OF  LANDS,  STRUCTURES  AND  PERSONAL  PROPERTY,  1880  1912 


Year 

Total 

Assessment 

Assessment 
of  Lands 
! exclusive  of 
Structures 

Per  Cent 
of 

Total 

Assessment 
of  Structures 

Per  Cent 
of 

Total 

Assessment 
of  Personal 
Property 

Per  Cent 
of 

Total 

1880. . . 

$268,517,736 

$155,538,653 

| 57.9 

$46,733,395 

17.4 

$66,245,688 

24.7 

1890. . . 

606,527.729 

395,545.187 

65.2 

101,583,108 

16.7  1 

109,399,434 

18.1 

1900.  . . 

610,979.258 

365,023,976 

59.7 

125,513,641 

20.6 

120,441,641 

19.7 

1902.  . . 

784,493,325 

487,387,700 

62.1 

159,865,561 

20.4 

137,240,064 

17.5 

1904.  . . 

870,502.652 

530,295,225 

60.9 

170,771,551 

19.6 

169,435,876 

19.5 

1906. . . 

941,346,881 

563,589,908 

59.9 

188,297,703 

20.0 

189,459,270! 

20.1 

1908. . . 

1,091,641,300 

689,211,302 

63.1 

209,386,679 

19.2 

193,043,319 

17.7 

1910. . . 

1,222,430,377 

773,888,282 

63.3 

238,561,236 

19.5 

209,980,859; 

17.2 

1912. . . 

1,365,676,469 

880,471,664 

64.4 

269,921,880 

19.8 

215,282.925 

15.8 

It  will  be  noticed  again  from  this  table  that  the  relative  per- 
centage of  assessment  on  lands  has  been  increasing  in  recent  years, 
while  the  relative  assessments  on  structures  and  personal  property 
have  been  decreasing.  In  1900,  land  represented  59.7  per  cent  of 


180 


THIRD  BIENNIAL  REPORT 


the  total  real  and  personal  property  assessment,  structures  20.6  per 
cent,  and  personal  property  19.7  per  cent.  In  1912,  land  increased 
to  64.4  per  cent  of  the  total,  while  structures  and  personal  property 
both  show  a decrease,  the  former  falling  to  19.8  per  cent,  and  the 
latter  to  15.8  per  cent  of  the  total.  The  average  ratio  for  the  period 
is  61.8  per  cent  on  lands,  19.3  per  cent  on  structures,  and  18.9  per 
cent  on  personal  property.  ^ 

If  both  personal  property  and  structures  had  been  exempt  from 
taxation  during  this  period,  it  would  have  been  necessary  to  increase 
either  the  assessment  or  rate  of  taxation  on  lands  an  average  of  v 

61.8  per  cent  to  make  up  the  loss  in  state  and  local  revenues.  If 
both  classes  of  property  were  exempt  this  year  it  would  require 
an  increase  of  55.3  per  cent  on  lands  to  produce  the  same  amount 
of  revenue  as  the  combined  assessment  will  produce. 

The  exemption  from  taxation  of  personal  property,  and  struc- 
tures and  improvements  on  lands,  as  already  stated,  would  not  re- 
duce taxes;  it  would  simply  change  the  incidence  of  the  tax.  Re- 
duced expenditures  mean  reduced  taxes,  just  as  increased  expen- 
ditures mean  increased  taxes,  but  the  method  of  levying  the  tax, 
or  the  class  of  property  on  which  it  is  levied  will  neither  decrease 
nor  increase  the  aggregate  tax  burdens.  All  that  the  advocates  of 
the  single  tax  principle  claim  is  that  land  is  the  natural  heritage 
of  all  the  people,  and  hence  should  bear  the  burdens  of  govern- 
ment, and  that  a tax  on  anything  but  land  is  a tax  on  thrift  and 
industry. 

This  review  of  the  development  of  the  single  tax  principle  in 
western  Canada,  and  the  effect  it  would  have  on  the  incidence  of 
taxation  if  adopted  in  this  state,  is  submitted  as  a matter  of  in- 
formation, and  not  as  a recommendation.  The  single  tax  principle 
has  many  earnest  advocates  in  Minnesota,  but  the  time  is  scarcely 
ripe  for  its  adoption  in  this  state.  While  this  commission  neither 
advocates  nor  condemns  the  principle  at  this  time,  it  does  com- 
mend it  to  the  serious  study  of  every  student  of  taxation. 


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